Labor’s Plans
Posted: April 29, 2008
An examination of Labor’s plans for tax, superannuation, first home buyers and inflation.
Kevin Rudd describes himself as an economic conservative, and during the election campaign Labor promises on tax cuts broadly mirrored those of the Coalition. So will we see much of a change to the economic landscape under Labor?
Tax
Labor promised significant tax cuts during the election campaign. However, as the greatest cuts would not be delivered until well into a second term, some of these can only be considered as “aspirational”.
Labor can deliver tax cuts through to 2010/2011 financial year, and proposes the following:
| Current Tax Rates | 2010/2011 | ||
|---|---|---|---|
| Income ($) | Tax Rate (%) | Income ($) | Tax Rate (%) |
| 0 – 6,000 | 0 | 0 – 6,000 | 0 |
| 6,001 – 30,000 | 15 | 6,001 – 37,000 | 15 |
| 30,001 – 75,000 | 30 | 37,001 – 80,000 | 30 |
| 75,000 – 150,000 | 40 | 80,001 – 180,000 | 37 |
| 150,001+ | 45 | 180,001 + | 45 |
Low income earners will benefit from an increase in the Low Income Tax Offset from $750 to $1,500.
If still in a position to do so, Labor aims to cut out the 37% tax bracket in 2013. The 30% bracket will extend to $180,000, and encompass the vast majority of tax payers. The top rate for people earning over $180,000 would drop to 40%.
Superannuation
Major reforms to superannuation were introduced in 2007, with Labor’s support, and there’s no indication that the new government plans any significant changes in the future.
Labor has stated that a higher level of compulsory superannuation contributions is necessary if people are to adequately fund their own retirements. It has indicated a rate of 15%, up from the current 9%, is desirable. However, it remains to be seen if they will pursue this.
There is also talk that the planned tax cuts may be more appropriately delivered (perhaps in part) in the form of additional superannuation contributions.
First Home Buyers
Housing affordability is a major concern for government. The new government plans to assist first home buyers by establishing First Home Savings Accounts. It appears that these will be operated by superannuation funds, but will be separate from a member’s superannuation account.
First home buyers will be able to divert $5,000 of their pre-tax salary into the account, where it will be taxed at 15%. An additional $5,000 of after-tax income can be contributed each year. Interest earned on the account will be taxed at 15% or less, and the government anticipates that a couple could achieve a home deposit of around $85,000 after five years.
Funds will only be able to be withdrawn after four years, and only for the purchase of an eligible first home. Withdrawals will be tax-free.
Pensioners
Labor’s pensions policy focused on improved rates for certain types of ancillary payments. Pensioners can expect an increase in the Senior’s concession and telephone allowance, and improvements to the utilities allowance.
Reality Check
Now in government, Labor faces the reality of trying to battle inflation, deliver its promised tax cuts, and maintain a healthy budget surplus. This will entail overall cuts in government spending, and its razor gang is already hard at work.
One significant change from the previous government is Labor’s willingness to use fiscal policy – the balance between government income and expenditure – to help fight inflation. This will support monetary policy, which is the manipulation of interest rates by the Reserve Bank. Fiscal policy takes longer to produce results, and Wayne Swan’s first budget in May will provide the best guide to Labor’s approach to the economy.